At Conexus Insurance Partners, part of our People-First approach is helping businesses understand what drives those numbers so you can make informed decisions, plan ahead, and reduce risk in meaningful ways.
Below is a high-level look at how rates are determined and what influences premiums across major lines of commercial insurance. (Note: Every carrier uses its own underwriting guidelines. The factors below are common industry standards and not specific advice.)
For Colorado businesses, a common questions we hear is:
“How exactly are my insurance premiums calculated?”
It’s a fair question—especially in today’s evolving market. The truth is that rates are not random. Every commercial insurance policy is built from a formula that starts with a rate and ends with a premium once your business’s unique exposures and operations are factored in.
⭐ How Insurance Rates Become Premiums
While each line of insurance has its own formula, the structure typically looks like this:
Rate × Exposure = Premium
(Then adjusted for credits, debits, experience modifiers, and underwriting considerations.)
Rate = The cost associated with a specific exposure (e.g., per $100 of payroll, per $1,000 of property value).
Exposure = The measurable unit of risk (e.g., payroll, sales, vehicle count, square footage, equipment values).
Premium = What your business ultimately pays.
Now, let’s break it down by coverage.
1. Property Insurance: How Rates Are Calculated
Property insurance rates are influenced by the likelihood and severity of a physical loss.
Primary Factors That Influence Property Rates
- Building Value & Replacement Cost: Higher values = higher premiums. Colorado’s construction costs continue to impact replacement valuations.
- Construction Type: Wood, metal, brick, tilt-up concrete, etc.
- Occupancy: How the building is used and by whom.
- Protection: Fire sprinklers, alarms, distance to a fire station, hydrant access.
- Exposure: Nearby risks such as wildfire zones, hail-prone regions, or neighboring hazardous operations.
- Crime rating of the location: Higher-crime areas may experience increased risk of theft or vandalism, which can influence property insurance rates.
- Loss History: Past property claims can increase the risk profile.
- Catastrophe Modeling: Colorado is one of the most hail-impacted states in the country, which influences base rates.
How Property Premiums Are Formed
Property Rate (per $100 of value) × Total Insured Value
+ adjustments for deductible, coinsurance, endorsements, and risk controls.
2. General Liability (GL): Rates Based on Operations
General Liability covers bodily injury and property damage arising from your operations. Rates are tied directly to how your business interacts with people, products, and property.
Primary Rating Exposures
- Gross Sales (most common)
- Payroll
- Square Footage
- Units (e.g., per apartment or hotel room)
Factors That Influence GL Rates
- Industry & Operational Risk: Construction, retail, hospitality, and manufacturing traditionally carry higher exposure than clerical operations.
- Products or Services Provided: Some carry more inherent liability risk.
- Premises Conditions: Foot traffic, hazards, safety controls.
- Loss History: Frequent slip-and-falls, product issues, or contractor claims can impact rates.
- Experience & Years in Business.
How GL Premiums Are Formed
Rate (per $1,000 of sales/payroll/square footage) × Exposure
+ underwriting credits or debits based on controls and claims.
3. Workers’ Compensation: A Pure Formula-Driven Line
Workers’ Comp is one of the most formulaic coverages, making it easier to understand.
How Workers’ Comp Is Rated
Class Code Rate × Payroll ÷ 100 × Experience Modifier (MOD)
- carrier underwriting adjustments.
What Influences Workers’ Comp Rates
- Classification Code: Each job role has a predetermined rate based on its inherent risk (clerical vs. roofing).
- Payroll: The exposure base for calculating premium.
- Experience Modifier (MOD): A numerical score reflecting your claims history vs. industry average.
- MOD < 1.00 reduces premium.
- MOD > 1.00 increases premium.
- Safety Programs & Loss Control: Demonstrated risk mitigation can influence underwriting decisions.
Why Colorado Sees Variability
Medical costs, lost-time claims, and industry-specific injury trends all affect statewide rates.
4. Business Auto: How Rates Are Built
Commercial auto is one of the most pressured lines in Colorado due to rising accident severity, repair costs, and litigation.
Rating Factors for Auto
- Vehicle Type & Use: Service, delivery, long-haul, hired/non-owned, private passenger.
- Driving Radius: Local, intermediate, long-distance operations.
- Garaging Location: Higher-risk urban areas vs. rural.
- Driver Profiles & Motor Vehicle Records: Experience, violations, and prior accidents.
- Mileage & Frequency of Use.
- Loss History.
- Crime Rating (theft and vandalism trends in the area)
How Auto Premiums Are Formed
Rates are applied per vehicle, based on its characteristics and usage. Liability, physical damage, and medical coverage each have separate rates.
5. Inland Marine & Equipment Coverage: Rated by Value + Risk Exposure
Inland Marine protects mobile equipment, tools, or specialized property. Rates depend on:
Key Rating Factors
- Equipment Type & Value.
- Mobility & Usage: How often it moves and how it’s used.
- Security Controls: Storage procedures, tracking, locks, jobsite protections.
- Loss History.
- Theft Trends: Colorado has experienced high theft rates for commercial tools and catalytic converters, influencing base rates.
How Premiums Are Calculated
Rate (per $100 of value) × Scheduled Equipment Value
+ adjustments for deductibles, coverage options, and endorsements.
6. Umbrella / Excess Liability: Priced According to the Underlying Risk
Umbrella premiums are influenced by:
- The size and type of business
- Underlying liability exposures
- Loss history
- Limit selected
- Industry risk profile
- Vehicle count (auto exposure heavily influences umbrella pricing)
Umbrella pricing is tied to the total risk severity—not just the number of policies underneath.
Why This Matters for Colorado Businesses
Understanding how rates are calculated empowers you to:
✔ Make informed decisions about coverage
✔ Evaluate how operational changes impact premiums
✔ Strengthen safety and risk-management programs
✔ Reduce long-term costs by reducing exposure and claims
✔ Plan ahead in a challenging insurance market
At Conexus Insurance Partners, we help Colorado businesses understand exactly what’s driving their premiums—not through confusing jargon, but through transparent conversations and actionable guidance.
The Bottom Line
Insurance premiums come from measurable exposures, established rates, and risk-specific adjustments—not guesswork. By understanding how each line of coverage is rated, Colorado businesses can better navigate today’s changing insurance environment and build stronger, more resilient programs.
If you’d like help reviewing your current policies or understanding the factors influencing your premiums, our team is here to support you every step of the way.